Among all the different criteria managers and investors can use to determine what funds to invest in, can one as stringent and restricting as religious faith bring about decent returns?
Researching an article about the growing number of SRI funds in Asia, I found that over a third of those listed were faith-based funds.
Using religious dogma to make investment decisions may sound alarming to many investors, but further digging into the subject produced some intriguing results.
The $2.7 billion Amana Mutual Funds Trust, a sharia-compliant fund, produced a five-year annualized return of 6.76%, according to Morningstar. It posted these results despite conforming to Islamic principles which means the fund avoids earning interest or investing in companies that do.
From the outset these funds clearly outline which stocks or companies they consider unsuitable, according to their religious beliefs. This process, however, can eliminate extremely profitable and popular firms which would be a no-brainer for the majority of other fund managers.
Successful companies such as Unilever, Sony Corporation and even Walt Disney have been excluded by the US-based Timothy Plan mutual funds, listed on its 'Hall of Shame' of non-conforming firms according to its strict list of principles.
The firm says it looks to conduct 'every phase of our business in a manner that brings honor and glory to our Lord Jesus Christ.'
It is described as ‘the first mutual fund to actively avoid investing in companies that are involved in abortion, pornography, anti-family entertainment, or that actively promote non-traditional married lifestyles’, it considers the activities of all these firms as contrary to the beliefs which govern its investment decisions.
Although its avoidance of any firms seen to promote 'alternative lifestyles' or abortion may be unpalatable to some, it has performed surprisingly well. Latest performance figures for its funds are not available, but according to a news report from 2008 the $121 million Timothy Plan Large/Midcap Value fund had earned Morningstar's top rating, with a five-year annualized return in excess of 16%.
The amalgamation of religious faith and financial investment, or morally responsible investing (MRI), could appear an uneasy combination for some people. In the US in particular, however, there seems to be growing demand for this kind of investment product as a recent article from ABC news revealed.
We would be interested to hear your views on the subject. Is the mixture of faith and funds in the form of MRI really a viable approach for the mainstream investor?